1. In a capital budgeting analysis, interest paid on a loan that must be taken to finance the project must be included in the analysis.

a) True

b) False

2. It’s the only type of relevant cost that does not involve a cash outflow:

a) Depreciation expense

b) Opportunity cost

c) Income tax expense

d) Synergy benefits

3. Two projects are being considered. The net investment required for both is the same. The project with the shorter payback will always bethe more profitable project.

a) True

b) False

4. Depreciation expense is included in capital budgeting analyses because:

a) It is a cash outflow

b) There is a tax benefit that results from depreciation

c) It contributes to Net Income

d) It is an opportunity cost